Susan Gim

Franklin Templeton’s specialist investment managers provide their outlooks on Central Banks, the global economy and key asset classes for the second half of 2024. They include insights from the following firms:

Brandywine Global Investment Management expects high yield bonds to continue to benefit from an attractive yield as well as strong fundamentals and favorable supply-demand dynamics. Headquartered in Philadelphia, Brandywine Global looks beyond short-term, conventional thinking to rigorously pursue long-term value. Based in Philadelphia, it has $61 billion in assets under management (AUM) as of March 31, 2024.

ClearBridge Investments provides its views on the outlooks for both large cap growth and international growth stocks for the remainder of the year. Headquartered in New York with $187.9 billion in AUM, it is an authentic active global equity manager with a legacy dating back over 50 years.

Martin Currie, a firm that dates back to 1881 and has $20.7 billion in AUM, provides its outlooks on global emerging markets. Headquartered in Edinburgh, Scotland, Martin Currie is driven by its purpose of Investing to Improve Lives.

Western Asset Management provides its outlooks on global fixed income as well as U.S. municipal bonds. Western Asset is a globally integrated fixed income manager, sourcing ideas and investment solutions worldwide. Based in Pasadena, CA, it has $385.4 billion in AUM.

Brandywine Global: High yield bond market outlook

Bill Zox, CFA, Portfolio Manager says “The high yield asset class continues to benefit from an attractive yield around 8%, strong fundamentals and favorable supply-demand dynamics. The one metric that warrants caution – a spread over Treasuries that is near the tight end of the historic range – must be managed but is not in our view enough to offset the many positive factors. Defaults have stabilised at well below average levels since late last year. Interest coverage has stabilised at well above average levels.

“The management teams of high yield issuers have had almost two years to prepare for higher interest rates and possible recession. And, except for the lowest 10%-15% of credit quality, they have had good access to capital, not just in the high yield market but in loans, private credit, asset-backed securities and public and private equity. High yield issuers with publicly traded equities can access the convertible bond market at the same low interest rates we saw from 2020-2021 if they are willing to give up some of the upside on their stock, which may well be at a high valuation.

“Since 2022, most of the new issuance in high yield has been for refinancing. We have not seen much, if any, of the risky bond structures or financing of bad businesses that precipitated major sell-offs in prior high yield cycles. This very limited net new supply is being met with strong global demand for high yield bonds from allocators who understand these positive factors and the long history of compelling risk-adjusted returns that the asset class has delivered.

Western Asset: Global fixed income outlook

Michael Buchanan, Co-Chief Investment Officer says “The market consensus expectation is for interest rates to remain “higher for longer” due to resilient economic growth and persistent inflation, which continues to exceed the Federal Reserve’s target. This outlook suggests that any potential rate cuts by the Fed would be limited and likely not occur until the latter half of the year. However, there’s also a strong possibility that if inflation rates gradually decline, even if unevenly, it could pave the way for the Fed to eventually lower rates further, although the timing and extent of such cuts remain uncertain.

“Western Asset holds a constructive view across most fixed income sectors, encouraged by the slow but steady resolution of inflationary pressures and other challenges that arose during the Covid crisis, although geopolitical risks remain a significant concern. A peaceful navigation through these risks could lead to a more favorable outlook for fixed income markets, especially as growth is expected to slow and inflation to decline, potentially allowing the Fed to adjust its policy stance.

“We believe that this positive macroeconomic outlook promotes renewed optimism for fixed income and even suggests an “end of cash” era, arguing that cash equivalents are often the worst-performing asset class; this is supported by the evidence that fixed income investments typically outperform cash, especially when the Fed enters a policy easing cycle. Historical trends show that diversified bond portfolios can offer healthy returns even when the Fed pauses rate cuts. Moreover, fixed income offers valuable portfolio diversification benefits, as the historically negative correlation between equities and bonds has resumed after being disrupted by the high inflation environment of 2021-2022.

“We believe that in this environment, active management is critical to help investors identify attractive opportunities. Specifically, high yield credit, structured products, emerging market debt and agency mortgage-backed securities (MBS) present compelling prospects due to their attractive spreads and strong fundamentals. Additionally, we see potential in municipal bonds (munis), as historical data suggests that entering the market before the Fed initiates rate cuts has typically led to more favorable outcomes compared to investing after the initial rate reduction in a cycle.

“In summary, our outlook at Western Asset is supported by expectations of easing inflation and eventual rate cuts. This favorable environment strengthens our conviction to increase exposure to select fixed income sectors that present attractive return opportunities. We also underscore the importance of active management to nimbly position portfolios and seize compelling opportunities as they arise, in an effort to maximise returns for our clients.”

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